One name that has been in the news a lot in recent weeks is that of Tesla Motors Inc (NASDAQ:TSLA). Not that long ago the car manufacturer looked to have a rather bleak future, but over the last twelve months in particular, the company which is named after the renowned electrical engineer and physicist Nikola Tesla has staged a dramatic recovery in its fortunes.
Just a couple of years ago, Tesla Motors Inc (NASDAQ:TSLA) was one of the most shorted stocks on the NASDAQ index. But it denied the short sellers by performing as well as virtually any publicly listed company last year, as its share price shot upwards.
Tesla Motors' transformation
How then has Tesla Motors Inc (NASDAQ:TSLA) managed to turn around its reputation in such a short period of time? The main source of success for Tesla has been agreeing to a partnership with Toyota Motor Corporation (NYSE:TM) (TYO:7203) to collectively engineer an electric vehicle. Meanwhile, the new status of Tesla was underlined by its announcement in recent weeks that it has agreed a deal with AT&T which will add add Internet connectivity to and power engine diagnostics to all models of its next generation electric vehicles. In inking this deal, Tesla followed such powerhouses of the motor industry as Audi and General Motors.
Last year Tesla Motors Inc (NASDAQ:TSLA) posted a significant profit, a far cry from the days when the only profit associated with the company was from those who were shorting its stock. Tesla sold over 20,000 vehicles during the last financial year, and its successes were not merely limited to the economic strata. Its Model S sedan was named Motor Trend’s 2013 Car of the Year, and its share price rocketed; bad news for all those that had shorted it, but rather good news for investors who enjoyed a mammoth 335% return.
The turnaround of this particular success story has been so dramatic that Tesla Motors is now firmly established as the fourth largest domestic automaker in the United States. This is not only a superb achievement, it was also considered a logistical impossibility until it actually happened, with the so-called 'Detroit Three', General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F) and Chrysler, assumed to be utterly untouchable.
Tesla Motors Inc (NASDAQ:TSLA)’s Model S has represented a particular coup for the company, cornering the market for luxury electric sedans. Of course, the road ahead for Tesla is not entirely clear as huge players such as General Motors Company (NYSE:GM) are already making it explicitly clear that they want their own slice of the potentially lucrative electric car cake. Tesla has certainly recognized the direct threat that GM poses, as the two companies have been enthusiastically poaching one another’s engineers over the last few months.
Tesla Motors' challenges for 2014
Thus, moving forward there will be several challenges for Tesla Motors Inc (NASDAQ:TSLA) to continue the momentum that it has built up during this halcyon period of regeneration. Firstly, the company is expected to have to deal with increased bottom line expenditure during 2014, not least because it is ambitiously extending its operation. Tesla is looking to extend its worldwide supercharger network and penetrate new markets during the next twelve months, with key ‘developing economies’ such as China a particular target (if indeed you can reasonably describe the world’s second largest economy as being ‘developing’).
This would look to be an entirely sensible strategy; unquestionably the future decades are going to see the traditional Western markets being less dominant in even the thinking of Western companies. But branching out further afield will increase costs significantly, and it has already been predicted that Tesla’s R & D costs could increase by roughly a quarter due to developmental efforts related to its forthcoming Model X crossover vehicle. Thus, there will be pressure on Tesla Motors Inc (NASDAQ:TSLA) to sustain its impressive figures during this transitional period.
In such a context, sales obviously become ultra-important. Unfortunately, though, Tesla might experience delays with regard to its forthcoming crossover EV, which is scheduled for release in the United States later this year. This vehicle has already been delayed quite considerably, as it was initially expected to have been released by now, but Tesla Motors Inc (NASDAQ:TSLA) has instead relegated its unveiling to Q4 of 2014. Any further delays would be, perhaps not disastrous, but certainly not ideal for the company.
Having said that, the Model X is an extremely exciting vehicle which could be a massive hit for Tesla. With the ability to accelerate from 0 to 60 mph in 4.4 seconds, this could be the sexiest vehicle that Tesla has retailed thus far, and could really make a huge positive impact on its burgeoning image.
While the company still has a lot of promise up its sleeve, there are also massive challenges ahead for Tesla Motors Inc (NASDAQ:TSLA) from the behemoths of the motor trade. Aside from GM, Ford have also been investing a lot of energy and resources into gaining a significant market share in the EV marketplace. GM has boasted about developing an electric car which can travel 200 miles on one charge, and companies of the size of GM and Ford Motor Company (NYSE:F) obviously can’t be written off; in fact, there not at all acquainted with the concept of finishing second.
So at this point in time, indicators regarding the future prospects of Tesla are mixed. On the one hand, the company has some exciting products on the horizon, has already lined up some valuable partnerships, and has a very valid and ambitious strategy for the mid-term. On the other, they are up against some vast and wealthy corporations, have some massive infrastructure and logistical challenges ahead of them, and face huge pressure to deliver a spectacular vehicle in Q4. Time will tell whether Tesla Motors Inc (NASDAQ:TSLA)’s rise was a brief anomaly or a more lasting trend.